ORIFLAME HOLDING AG. Eurofinance Miami Alfredo Elespuru VP Global Treasury May 2016

Transcription

1 ORIFLAME HOLDING AG Eurofinance Miami Alfredo Elespuru VP Global Treasury May 2016

2 Agenda About Oriflame Background Strategic objectives Key actions Local currency invoicing (LCI) Framework Objective Characteristics How does it work? Results Latam Special considerations Q&A 2

3 Oriflame in brief Beauty company selling direct Around 3 million beauty consultants 1.2 billion in sales annually 95% of orders online 1,000 cosmetic products, of which 1/3 are new each year New catalogues every third week in 40 languages Manufacturing in Poland, Russia, China & India Around 6,500 full-time equivalent employees Listed on Stockholm Nasdaq exchange and domiciled in Switzerland 5/12/2016 3

4 48 years of history and transformation 1960s -1970s 1980s 1990s 2000s 2010s HOME PARTIES + PERSON TO PERSON SELLING + NETWORK MARKETING + ONLINE ORDERING + BUSINESS TOOLS + ONLINE SELLING & RECRUITING Offline orders Online orders million visitors 60 million visitors 45 million site visits 175 million site visits 1.5 billion page views 3.3 billion page views 38% of all orders online 95% of all orders online 0 Facebook fans >7 million Facebook fans 4

5 Cash Flow Q4 15 Q4 14 YE 15 YE 14 Net profit before income tax, m Op. profit before changes in wc, m m Operating cash flow Capex Change in working cap. and provisions, m Operating CF, m CF Investing Activities, m (2.3) 21.1 (15.5) (6.0) Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q4 operating cash flow 68.8m ( 66.0m) Net profit before tax 3.7m Non-cash items in net profit before tax 23.6m Impact from changes in working capital and provisions -26.5m Inventories -16.7m m Total inventory Receivables, prepaid exp., asset derivatives +13.0m 50 Payables, accrued exp., liability derivatives -28.8m Provisions +6.0m 0 Q4 13 Q1 14 Q2 14Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Interest, charges, taxes +2.0m 5

6 Regions Europe CIS Turkey, Africa & Asia Latin America 2015 YTD Regional Split 11% (10%) 8% (7%) 10% (9%) 36% (25%) 21% (21%) 36% (30%) 17% (16%) 44% (27%) 23% (21%) 32% (44%) 39% (47%) 23% (43%) Sales Active consultants Adj. Operating profit 6

7 Background Oriflame exposed to 40+ currencies: emerging markets Changing geographical footprint Euro as reporting/functional currency Increasing volatility of its key currencies Business too concerned with exchange rates Operating profit unprotected in the short term Balance sheet hedging in

8 Group currency sales impact since 2010 Sensitivity analysis showing the effect on group operating profit from a 1% change of the EUR against the currencies in five of the largest sales markets Russia RUB Indonesia IDR India INR China CNY Mexico MXN 30% 10% 9% 4% 8% 8

9 Strategic Objective Reduce Profit & Loss and cash flow volatility caused by f/x Cost of sales IC payables in Local Currency Approach to cash

10 What did we decide to do? Risk management New hedging policy Local Currency Invoicing (LCI): 15 currencies active Natural hedging Cash Re-defined financing of local entities: policies Implement two notional pools Intercompany loans in Local Currency Re-launch the cash flow reporting process Swift net Shared services as an extended arm of Global Treasury Balance sheet Convert all liabilities to local currency 10

11 Framework for LCI New hedging policy Approved and applied without hesitation Clear guidelines (85%,5%...) Risk management committee Empowered Global Treasury Extreme situations even with approval of BoD Treasury management system Critical to support program Accounting Reporting Analyses 11

12 Objective LCI It is a risk management program that aimed at: By: minimizing profit and loss and cash flow volatility caused by FX concentrating FX risk at group level and hedging exposures effectively 12/05/

13 Characteristics of program-lci Fix a price 6 months Announced 3 months in advance Hedging starting up to 12 months before: Build up layers Market efficient sizes 5% Impact on P&L according to inventory turnover 13

14 LCI Hedging concept* FX rates determined/agreed (LCI rates) Sales Forecast Sales OCGB to Local markets booked 60 days Sales OCGB to Local markets settled Oct X0 Jan X1 Jun X1 Aug X1 FX HEDGES "MARGIN" RISK Maturity of Hedges "RE-MEASUREMENT" RISK FX on receivables and related hedges OCI/COS Released to COS when goods are sold to third parties PLEX Cash flow hedge accounting *PLEX: profit and loss on exchange impacting below the operating profit line OCI: Other comprehensive income ( Equity account) and COS is cost of sales 14

15 What makes it work?-lci Convertible currency (CC) or Non CC can be converted by exporter in-country Hedging must be possible and size of exposure Forwards and options available Cost of hedging Invoice in local currency: customs clearance Comply with IFRS Highly probable forecast rule Documentation and testing IFRS 9 (new) 15

16 Pricing the LCI rate EUR/RUB 60 days payment Final Based on Based on Based on Fwd pts in Based on fwd 6m worst 5y best 5y Mar 15 spot Points average rate rate Spot Outright 29/02/ /03/ ,445 55, /04/ ,873 66, /05/ ,968 67, /06/ ,985 76, /07/ ,291 82, /08/ ,065 90, /09/ months forward average /05/

17 P&L Accounts 12/05/

18 LCI Margin impact Market, Trading & Consolidated Key rates LCI rate Actual rate Hedging rate Business Unit Rate Rate Local market = Actuals - LCI Trading company = LCI - Hedging Consolidated = Actuals - Hedging Only true if hedge is 100 % efficient: Done for 100% of the amount From forecasts that are 100% accurate (time and amount of purchases) With payments received from the market at the same time as the hedge matures 12/05/2016 Copyright 2015 by Oriflame Cosmetics Global SA 18

19 Key success factors of the LCI program Local Markets Good forecasts critical to a good hedge execution By updating the forecast earlier if important assumptions change Paying within payment terms (not before, not after) Global Treasury By aligning hedging maturity dates with sales and payment dates whenever possible Supply chain can become critical to the success Reporting and analyses Group Accounting Correct booking of A/R 12/05/

20 Forecast Accuracy (an example) Actual Fcst , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,331 Accuracy: Forecast is higher (lower) than actual 1 Month ahead 0% -24% -34% -51% -67% 3% -31% 2 months ahead -8% -49% -28% -48% 24% -6% 3 months ahead -40% -18% -34% 80% 38% 4 months ahead 0% -33% 56% 6% 5 months ahead 1% 99% 44% 6 months ahead 137% -32% 12/05/

21 Results-LCI Quantitative: Program applied to 75% of sales or 17 countries* Significant gross margin protection in 2015 Savings in bid/ask spreads Savings in closed euro bank accounts Cash balances reduced and more concentrated Qualitative: Markets can forecast better Focus on core business Aligned with economics of the business Improved communication with markets and better cash control *4 from Latin America 12/05/2016 Copyright 2015 by Oriflame Cosmetics Global SA 21

22 Special comments for Latin America* Mexico Convertible currency Top 10 8% of the exposure Program fully applied No issues Improves local profitability Netting successfully applied in Latam with change Colombia COP not supported by customs clearance USD Reduced bid/ask spreads Increased liquidity Use of USD to pay USD liabilities of Trading company * Trading company in Europe 12/05/

23 Final considerations for company based in Latam Relationship between the importer and exporter (risks and rewards) Deductibility of possible losses on hedging Transaction loss (A/P or A/R) Transfer pricing considerations Convertibility of currencies of importer to USD or other currencies by exporter Use of free zones 5/12/

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